You might be interested in multiple investment options if you have received your annual performance pay, bonus or lump sum money. It is not difficult to invest lump sums in mutualfunds, but one might think so. This article will discuss various options for investing lump sum money into mutual-funds.
How do I invest lump sums in Mutual Funds?
Before you can decide on the best options, you need to decide how long you would like to hold the lump sum in mutual funds. Do you want it to be for a short, medium or long term?
1) Invest In Long Debt Mfs: Until the recent Budget, debt-MFs were well-known as they offered a good tax benefit after one year. This is now increased to three years. These are a great investment option to make for a 3 year period. You can enjoy long-term capital gain indexation benefits if you hold the portfolio for 36 months. Investing in the best long-term debt MFs such as the Franklin India Corporate bond opps Fund, ICICI Pru long-term debt income-fund, Birla SL dynamic Bond Fund, etc. You will get good returns.
2 Invest in short term debt mutual funds: If you are looking to store your money for a 6-12 month period, you may choose to invest in short term debt mutual funds. These MF schemes invest in short-term fixed income opportunities and other debt instruments. ICICI Pruflexi income, SBI Magnum income fund and others are some of the most popular ultra-short term mutual-funds. These are excellent options.
3 Invest in liquid money for the very short term: You can store money that you don’t need now in liquid funds if you have money you plan to invest in or spend over the next few months. Liquid funds invest in short-term investment options that can be quickly liquidated. A 1 to 6 month investment period is ideal. ICICI Pru Money Market Fund and SBI Magnum Insta Cash Fund are some of the best funds in this category.
4) The STP method is used to invest in equity funds long-term: It’s a huge mistake for investors to invest a lump sum into equity funds. This strategy can be useful during market corrections and downtrends. If you are able to see where the market is at a peak, and you don’t know its direction yet, it may be a good idea to invest in short-term debt funds and then do STP (Systematic Transfer Plan). This will allow you to transfer your lump sum to equity funds over time. This is nothing, you’re investing once in debt funds and then doing STP each month for equity. It reduces the risk of investing a large sum in mutual funds. STP can be done to equity funds for a 9-12 month period. ICICI Pru Dynamic Fund, Birla SL Frontline fund, Quantum Long Term Equity-fund are some of the most popular equity-funds.
Conclusion Mutual-funds provide good long-term returns. Investing lump sums in the above methods will help you overcome market risk and provide higher returns than bank FDs.
You should be aware that mutual funds can carry market risks. Before investing, it is important to carefully review the mutual fund schemes.